Uefa's revelation that in 2008 18 Premier League clubs owed almost €4bn (£3.5bn), more money than the other 714 top European clubs put together, has highlighted the conundrum tearing at the heart of the English game.

The sunnier side of that apparently hopeless picture is that the English top flight makes hugely more money than its nearest rival, the Bundesliga, due principally to the willingness of English people to pay for expensive Sky TV subscriptions and season tickets. The 18 clubs – Portsmouth and West Ham were not included in the report because they were not granted a Uefa licence due to their financial meltdowns – mostly made operating profits, although after signing players and paying interest, overall more made losses than profits.

The prime reason for this contradiction, between a league making more money than ever previously imaginable, and one nevertheless writhing under a mound of debt, is that too much of the money football clubs make is spent on ever-inflating players' wages. Across Europe in 2007-08, the report – the European Club Footballing Landscape – states overall income rose 11%, but "the huge increase" in wages exceeded it, at 18%. In a bumper time for football, 47% of clubs across Europe lost money, with 22% reporting "significant losses" equivalent to more than a fifth of their income.

Uefa's general secretary, Gianni Infantino, cited the report, a copy of which the Guardian has seen, as the basis for the European governing body's "Financial Fair Play" initiative. That will require clubs from 2012-13 to break even, spend no more than the money they make, and not borrow, or have a rich owner putting money in, to scoop up losses and overspending.

"This is based on sound evidence," Infantino said of the analysis of 732 clubs' accounts from across Europe's top divisions. "The problem is that all clubs try to compete, a few of the biggest can afford it, but the vast majority cannot. They bid for players they cannot afford, then borrow or receive money from owners, but this is not sustainable because only a few can win.

"The recent example in England of Portsmouth shows it is time to do something. The requirement to break even is not to punish clubs but to help them. Many owners themselves have asked us to introduce some rules, to help them resist the pressure to overspend."

The report acknowledges the exceptional cases of Manchester United and Liverpool, whose combined £1bn debts served no investment at all, but were loaded on entirely by their American investors' takeovers. At United the Glazer family, and at Liverpool Tom Hicks and George Gillett, borrowed the millions to buy the clubs, then saddled the clubs themselves with the requirement to pay off those debts. Uefa has the moral confidence to criticise that practice in the report, a booming contrast to the Premier League's and Football Association's unwillingness to express even concern at what almost everybody else in football considers a scandal.

"Just over half of [the Premier League's] commercial debt has been placed into the [relevant] clubs (or at a holding company level) recently as a result of leveraged buyouts," the report states, "so far acting principally as a burden rather than to support investment or spending."

The Premier League has now accepted the need for some rules to encourage clubs not to sail towards meltdown, but is still wedded to the idea that investors from anywhere should be allowed to buy clubs and put in whatever money they want. Uefa's Financial Fair Play proposals clearly exclude that, with Infantino and the Uefa president, Michel Platini, arguing that being financially supported by a single owner is not sustainable because it inflates players' wages generally, then if the backer runs out of money, the club is plunged instantly into crisis.

Infantino made it clear today that club owners will be permitted to put their money into sensible, long-term investment, such as improving the stadium, training facilities or youth academy.

"We are very clear that the principle of the break-even rule has been agreed: clubs cannot spend more than the income they generate, and that income is not a gift from somebody," he said. "This is for the long-term health of clubs and the European game in general."

The Premier League has argued in an official submission to Uefa that owners should still be permitted to pay money into clubs to soak up overspending, and a spokesman cited examples of men considered benefactors here.

"The key thing is sustainability," he said. "The idea of preventing what the likes of Dave Whelan [at Wigan], Jack Walker [Blackburn], Steve Gibson [Middlesbrough], Roman Abramovich [Chelsea] and Sheikh Mansour [at Manchester City] have done to take their clubs on is not something that appeals to us."

Other owners who took clubs on and funded them to playing success, such as Alexandre Gaydamak at Portsmouth, were not cited as positive examples. The FA is understood to be taking the view that some initial investment from an owner should be allowed, as long as the club moves to breaking even within a short time. Infantino suggested that Uefa might accept that as a way of phasing in the requirement that clubs break even.

Overall, though, the English Premier League is a great deal quieter about this than it would probably have been two or three years ago, when, with revenues booming, the risks of clubs relying on borrowing or owners had not been messily exposed by Portsmouth and West Ham.

Uefa has moved impressively, from initial statements of concern by Platini, who talked of clubs borrowing to buy success as "financial doping" to a workable, practical proposal aimed at helping Europe's clubs live within their prodigious means. By opposing that, and arguing that clubs should still be allowed to be bought and pumped up by owners, the Premier League is swimming against a tide of logic.

Uefa points as evidence of this good sense to the key findings of its report, which will be published shortly. The 732 European clubs licensed by Uefa reported a collective income of €11.5bn (£10bn) in 2007-08, a picture of a game rolling in popularity and commercial clover. Yet overall they spent more than they earned: €12.1bn (£10.6bn), making total losses of €578m (£506m). This is waste on a heartbreaking scale. The finding that 18 Premier League clubs owed 56% of European football's commercial debt is devastating – more, not less so because of the scale of the debts loaded on to Manchester United and Liverpool.

One of the Premier League and FA's arguments is that if clubs have to live within their income, the rich clubs will surely dominate, but that is a separate argument, for another determined inquiry – how to make the sport more competitive again. At present, the report shows, the rich clubs dominate anyway; the top four clubs in each league make on average four times the money of every other club in their league. Attempting to bridge that gap the English way, by relying on a "benefactor" to put money in, now requires just two words to point out its flaws: Fratton Park.